Fortum's comments on European Commission's interim report of the sector inquiry on capacity mechanisms

05 July 2016, 13:31 EEST

In April 2016, the Competition Directorate of the European Commission issued an interim report of their sector inquiry into capacity mechanism gathering information on existing capacity mechanisms across 11 member states.

The report builds further on the Energy and Environmental state aid guidelines that became applicable mid-2014 by taking a restrictive view on the mechanisms compliant with competition law.

Two models are highlighted as possible suitable tools for member states to guarantee security of supply, strategic reserves and centralized/decentralized capacity mechanisms with cross-border participation. The annex 2 of the report includes a framework for cross-border participation that favours a participation of generators through availability products. Importantly, the report warned against member states replacing scarcity pricing with capacity mechanisms.

The final report is due for the Autumn taking into account the comments from the members states and stakeholders that have until 6 July to send their input.

Fortum's key messages

In its response to the consultation, Fortum outlines the need to target EC competition policy and powers towards restoring efficient markets as a guarantee for successful energy transition and security of supply:

  • Fortum shares the European Commission’s calls for improvements in the energy-only market. Thus, the introduction of any capacity mechanisms should be based on the demonstrated necessity/benefits and not replace more proportionate and market-based measures.
  • Fortum agrees with the European Commission that volume-based mechanisms are better suited as possible capacity instruments than price-based mechanisms.
  • Fortum believes that strategic reserves are least distortive and should be preferred over full-scale mechanisms. Strategic reserves have been successfully used in Sweden and Finland to guarantee the functioning of the day-ahead market. Strategic reserves can be used as a permanent solution if the day-ahead market cannot be otherwise always cleared.
  • Fortum agrees with the European Commission that regional adequacy assessments based on common methodologies should be used in determining the capacity adequacy. If and where capacity markets are justified by a regional assessment, cross-border participation will only reach its optimal if it stems from a regional capacity mechanism.
  • Criteria underpinning the cross-border participation of capacities should be well-calibrated and be common to the regional market in concern. Supervision from the European Commission is necessary to make sure that the criteria are sound, objective and proportionate and do not unduly restrict the potentials of foreign participation.

Read Fortum's comments in full from the attachment below.